A company’s options when faced with Insolvency
Administration, Liquidation or a Company Voluntary Arrangement (CVA) Administration are options when faced with Insolvency and Restructuring.
When a company is faced with insolvency, and the consequent restructuring it is likely to need to go through, it is inevitably a difficult and stressful time. There are a number of options that can be taken, including Administration, Liquidation and a Company Voluntary Administration. We know the choice can be difficult, so this article looks briefly at each of these options, and how they can help, should you find your company faced with insolvency.
What is administration and how can it help?
When a company is insolvent and facing serious threats from creditors it may enter into administration. Licensed Insolvency Practitioners are appointed to the company by either the company, the directors, or by a direct application to the Court. During this process the company is protected from creditor action.
During an administration, Licensed Insolvency Practitioners take over responsibility for the day to day running of the business. They will endeavour to save the business and prevent any further deterioration in the company’s financial position.
Administration buys a company time to address problems within the business, perhaps by attracting finance or private investors, or in some cases cutting back non-performing areas of the business. If the problems are resolved, then the company can be returned to the control of the directors.
The administration must have a purpose and the Government encourages the use of business recovery solutions after administration.
Licensed Insolvency Practitioners, with whom we at NDP have excellent relationships and to whom we can refer you, on a free of charge basis, will guide and advise you through this process.
Using the administration option, it is possible for the company or its directors (or a creditor such as a Bank) to appoint an administrator through a streamlined process. However, the law requires that any finance provider (like a bank or lender), with the appropriate security, is contacted and the aims of the administration be discussed and approved. The finance provider must have a floating charge (usually under a debenture) and the charge holder will need to give permission for the process to go ahead. Five days clear notice is required.
What is a Creditors Voluntary Liquidation (CVL) and how can it help?
CVL is a procedure, instigated by an insolvent company, by which the assets of the insolvent company are collected in, and the proceeds are distributed to the company’s creditors. At the end of the liquidation, the company is dissolved. The process is managed by a liquidator who is a Licensed Insolvency Practitioner.
Usually, a company goes into CVL after its directors realise that its liabilities exceed its assets or it cannot pay its debts as they fall due and so the company cannot carry on its business.
How does a company go into CVL?
A company goes into CVL if its members pass a special resolution for its winding up, with a majority of at least 75% (section 84 Insolvency Act 1986 and section 283, Companies Act 2006). The members nominate an insolvency practitioner to act as liquidator. The liquidation is deemed to commence from the passing of the resolution (section 86 Insolvency Act 1986).
After its members resolve to wind it up, the company convenes a meeting of its creditors (section 98 Insolvency Act 1986) (section 98 meeting). The section 98 meeting usually takes place immediately after the members’ meeting at which the resolution was passed. The creditors’ meeting must take place within 14 days of the resolution to wind up the company. At the section 98 meeting, the creditors vote to appoint a liquidator (rule 4.63 Insolvency Rules 1986).
What is a CVA?
A CVA is a procedure that may help a company to address its financial difficulties. It is a compromise, or other arrangement, between a company and its creditors under Part I of the Insolvency Act 1986.
A CVA is implemented under the supervision of a Licensed Insolvency Practitioner. The insolvency practitioner is known as the Nominee before the CVA proposals are approved, and as the Supervisor afterwards.
A CVA binds all unsecured creditors of a company (if the relevant majorities vote in favour of the proposals at properly convened meetings of creditors and shareholders of the company). A CVA does not affect the rights of secured or preferential creditors unless they agree to the proposals.
Choosing the right option if your company is facing insolvency
With over 100 years of combined insolvency law experience, NDP’s expert and approachable team of 9 solicitors, working with trusted Licensed Insolvency Practitioners, are well placed to assist the director in choosing the best option for the company and for the director.
For an initial free consultation, call us on 0121 200 7040, or contact us.